There are many provisions in the tax reform bill passed in late 2017 designed to benefit small business owners. There are also a variety of new tax tools affecting how small businesses account for deducting the cost of capital purchases under the new tax law. Here’s what you need to know:

Tool #1: Section 179 deduction
The new law increases the amount of business property purchases that you can expense each year under Section 179 to $1 million (from $500,000 previously). Normally, spending on business property (machines, computers, vehicles, software, office equipment, etc.) is capitalized and depreciated so that the tax benefit is spread out slowly over several years. Section 179 allows you to get the tax break immediately in the year the property is placed into service.

Tips:

There is an eligibility phaseout for Section 179 that ensures it’s only used by small businesses, but that was also raised to $2.5 million (from $2 million) by the new law. If you spend more than $2.5 million on business property in total during the year, your ability to use the $1 million Section 179 deduction is reduced dollar-for-dollar above that amount.

Section 179 deductions can be used on both new and used equipment.

You can now use Section 179 on property used to furnish lodging or in connection with furnishing lodging (such as rental real estate). It also includes improvements to nonresidential real estate assets such as roofs, heating and air conditioning, and alarm systems.

Tool #2: Bonus depreciation
Bonus depreciation limits (also known as first-year bonus depreciation) are also improved under the new law, but for a limited time. Bonus depreciation is similar to Section 179 and allows you to immediately expense capital purchases rather than depreciating them over several years.

Under the new law, first-year bonus depreciation increases to 100 percent of the qualified asset purchase price for the next five tax years (starting in 2018) and can now be applied to the expense of purchasing used property as well as new.

Tips:

Bonus depreciation is typically used on short-lived capital investments (with a 20-year or less useful life) such as machinery, equipment and software.

Bonus depreciation had been only for purchases of new equipment, but can now be applied to used equipment as long as you place it into service at your business during the tax year.

The allowable bonus depreciation starts to decline after 2022. It falls to 80 percent in 2023, 60 percent in 2024, 40 percent in 2025 and 20 percent in 2026.

Remember, though tax reform gives you expanded tools to accelerate depreciation, it may not benefit you to use them in every case. Sometimes it’s better to use the standard capitalization and depreciation tax treatment. These tax benefits do not change the amount a capital purchase can be expensed – only the timing. Calculating whether your business will benefit from these revamped expensing tools can get complicated, so give us a call if you need assistance.

Tips for when your employees are family members

Working with family can be a pleasure. It can also be a pain, especially if you have to terminate a family member’s employment. Here are tips to help you ease the strain of mixing your family and employee relationships.

Hire for the right reasons. Make your hiring and firing decisions based on the skill sets needed to keep your business operating effectively. Hiring your son because he’s struggling to find a job is not a good business reason for bringing staff on board.

Set clear expectations. Communicate the job’s performance requirements to your family member right from the start. Clearly define company policies for promotion, compensation and termination. Make it plain that unethical conduct will not be tolerated.

Avoid nepotism. Nepotism is our human habit of treating family members more favorably than others. Keep in mind that your non-family employees will be hypersensitive to any favoritism you show to relatives.

Document performance. Throughout your family member’s tenure, maintain a detailed personnel file that tracks behavior resulting in disciplinary actions. In the unfortunate case of a necessary firing, a well-documented file will provide a narrative record that lays out your reasons and clearly communicates the evidence leading to your decision.

If you have to fire, keep it professional. Set a formal termination meeting. You may want to involve a direct supervisor or a human resources professional to ensure that your company is appropriately represented and to prevent the conversation from lapsing into emotional arguments.

The bottom line: Adhere to formal business standards and communicate in a professional, businesslike manner with your related employees.

Taxes and virtual currencies: What you need to know

Virtual currencies are all the rage lately. Here are some tax consequences you must know if you decide to dip your toe into that world.

The IRS is paying close attention
The first thing to know is that the IRS is scrutinizing virtual currency transactions, so if you live in the U.S. you’ll have to report your transactions in Bitcoins and the like to the IRS. Despite some early misconceptions, virtual currency transactions can be traced back to their owners by governments and other cyber sleuths.

If you decide to use or hold virtual currencies, carefully report and pay tax on your transactions. Act as if you are going to be audited, because if you don’t, you just might be!

It’s property, not money
Note that the IRS doesn’t consider Bitcoin or other virtual currencies as money, because they aren’t legal tender. Instead, they are considered property. That means that if you are paid in Bitcoin, you will have to report it as income based on its fair market value on the date you received it.

And, if you sell Bitcoin, you have to pay tax on your gain using the cost (basis) of when you received it. The IRS has said that if Bitcoin is held as a capital asset, like a stock or a bond, then you would pay capital gains tax. Otherwise, if it is not held as a capital asset (for example if it is treated as inventory that you intend to sell to customers), it would be taxed as ordinary income.

Be aware of the risk
In addition to the increased oversight by the IRS, virtual currencies are at risk of virtual theft with no recourse to a government agency like the Federal Deposit Insurance Corporation, which insures U.S. bank balances. Do your research on storage and security before you invest. And if you need help with any tax questions related to virtual currency, don’t hesitate to call.

Congress has passed a tax reform act that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new act, which was signed into law on Dec. 22, 2017.

You can use this memo as a high-level overview of some of the most significant items in the new act. Because major tax reform like this happens so seldom, it may be worthwhile for you to schedule a tax-planning consultation early in the year to ensure you reap the most tax savings possible during 2018.

Key changes for individuals:

Here are some of the key items in the tax reform act that affect individuals:

Reduces income tax brackets: The act retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent. The individual income brackets are also expanded to expose more income to lower rates (see charts below).

Doubles standard deductions: The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended.

Limits itemized deductions: Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:

Caps state and local tax deductions: State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.

Caps mortgage interest deductions: For new acquisition indebtedness, mortgage interest will be deductible on indebtedness of no more than $750,000. Existing mortgages are unaffected by the new cap as the new limits go into place for acquisition indebtedness after Dec. 14, 2017. The act also suspends the deductibility of interest on home equity debt.

Limit of theft and casualty losses: Deductions are now available only for federally declared disaster areas.

No more 2 percent miscellaneous deductions: Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.

Tip: If you’re used to itemizing your return, that may change in coming years as the doubled standard deduction and reduced deductions make itemizing less attractive. To the extent you can, make any remaining itemizable expenditures before the end of 2017.

Cuts some above-the-line deductions: Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.

Weakens the alternative minimum tax (AMT): The act retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and increases the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.

Bumps up child tax credit, adds family tax credit: The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.

Expands use of 529 education savings plans: Qualified distributions from 529 education savings plans, which are not subject to tax, now include tuition payments for students in K-12 private schools.

Doubles estate tax exemption: Estate taxes will apply to even fewer people, with the exemption doubled to $11.2 million ($22.4 million for married couples).

Kiddie tax: Effective 2018, the “kiddie tax” on children’s unearned income will use the estates and trusts tax rate structure, meaning it will be taxed anywhere from 10 percent to 37 percent.

What stays the same for individuals:

Itemized charitable deductions: Remain largely the same.

Itemized medical expense deductions: Remain largely the same. The deduction threshold drops back to 7.5 percent of adjusted gross income for 2017 and 2018, but reverts to 10 percent in the following years.

Some above-the-line deductions: Remain the same, including $250 of educator expenses and $2,500 of qualified student loan interest.

Gift tax deduction: Remains and increases to $15,000 from $14,000 for 2018.

Farewell to the healthcare individual mandate penalty

One of the changes in the tax act is the suspension of the individual mandate penalty in the Affordable Care Act (also known as “Obamacare”). The penalty is set to zero starting in 2019, but remains in place for 2018 and prior years.

Tip: Retain your Form 1095s, which will provide evidence of your healthcare coverage. Without it, you may have to pay the individual mandate penalty, which is the higher of $695 or 2.5 percent of income. Beginning in 2019, this penalty is set to zero.

NOTICE: The IRS recently granted employers and health care providers a 30-day filing extension for Forms 1095-B and 1095-C, to March 2, 2018. The IRS clarified that taxpayers are not required to wait until receipt of these forms to file their taxes.

New 2018 tax bracket structures for individuals

Single taxpayer

Taxable income over

But not over

Is taxed at

$0

$9,525

10%

$9,525

$38,700

12%

$38,700

$82,500

22%

$82,500

$157,500

24%

$157,500

$200,000

32%

$200,000

$500,000

35%

$500,000

37%

Head of household

Taxable income over

But not over

Is taxed at

$0

$13,600

10%

$13,600

$51,800

12%

$51,800

$82,500

22%

$82,500

$157,500

24%

$157,500

$200,000

32%

$200,000

$500,000

35%

$500,000

37%

Married filing jointly

Taxable income over

But not over

Is taxed at

$0

$19,050

10%

$19,050

$77,400

12%

$77,400

$165,000

22%

$165,000

$315,000

24%

$315,000

$400,000

32%

$400,000

$600,000

35%

$600,000

37%

Married filing separately

Taxable income over

But not over

Is taxed at

$0

$9,525

10%

$9,525

$38,700

12%

$38,700

$82,500

22%

$82,500

$157,500

24%

$157,500

$200,000

32%

$200,000

$300,000

35%

$300,000

37%

Estates and trusts

Taxable income over

But not over

Is taxed at

$0

$2,550

10%

$2,550

$9,150

24%

$9,150

$12,500

35%

$12,500

37%

Key changes for small businesses:

Here are some of these key items in the tax reform act that affect businesses:

Cuts the corporate tax rate: Corporate tax gets cut and simplified to a flat 21 percent rate, changed from a multi-bracket structure with a 35 percent top rate.

Reduces pass-through taxes: Most owners of pass-through entities such as S corporations, partnerships and sole proprietorships will see their income tax lowered with a new 20 percent income reduction calculation.

Beefs up capital expensing: Through 2022, short-lived capital investments in such items as machinery and equipment may be fully expensed as soon as they are placed in service, using bonus depreciation. This now also applies to used items instead of only new ones; they just need to be placed in service for the first time in your business. After 2022, allowable bonus depreciation is then lowered incrementally over the next four years.

Strengthens Section 179 deduction: Section 179 deduction limits get raised to enable expensing of up to $1 million, and the phaseout threshold increases to $2.5 million. Section 179 may now also be used on expenses related to improvements to nonresidential real estate.

Expands use of cash-method accounting: Businesses with less than $25 million in gross receipts over the last three years may adopt the cash method of accounting.

Reforms international taxation: Treatment of international income moves to the territorial system standard, in which foreign investments are generally only taxed in the place in which they operate. The new laws allow tax deductions for certain foreign-sourced dividends, reduced tax rates for foreign intangible income and reduced tax rates for repatriation of deferred foreign income.

Repeals business entertainment deduction: Businesses will no longer be able to deduct 50 percent of the cost of entertainment, amusement or recreation directly related to their trade or business. The 50 percent deduction for business-related meals remains in place, however.

Modifies several business credits: Several business credits are maintained but modified, including the orphan drug credit, the rehabilitation credit, the employer credit for paid family or medical leave and the research and experimentation credit.

Boosts luxury automobile depreciation: Luxury automobiles placed in service after 2017 will have allowable depreciation of $10,000 for the first year, $16,000 the second, $9,600 the third and $5,760 for subsequent years.

Congress has passed tax reform that will take effect in 2018, ushering in some of the most significant tax changes in three decades. Here are some major items in the new bill that impact individual taxpayers.

Reduces income tax brackets. The bill retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent.

Double standard deductions. The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended.

Limits itemized deductions. Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:

Caps state and local tax deductions. State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.

Caps mortgage interest deductions. For newly acquired homes, mortgage interest will be deductible only for mortgages of less than $750,000. Existing homeowners are unaffected by the new cap. The bill also suspends the deductibility of interest on equity debt.

Limit on theft and casualty losses. Now only available for federally declared disaster areas.

No more 2 percent miscellaneous deductions. Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.

Cuts some above-the-line deductions. Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.

Weakens the alternative minimum tax (AMT). The bill retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.

Bumps up child tax credit, adds family tax credit. The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.

Expands use of 529 education savings plans. Tax-deductible contributions to 529 education savings plans can now be used to pay tuition for students in K-12 private schools.

Doubles estate tax exemption. Estate taxes will apply to fewer people, with the exemption doubled to $11.2 million ($22.4 million for a married couple).

Reduces pass-through business taxes. Most owners of pass-through entities such as S corporations, partnerships and sole proprietorships will see their income tax lowered with a new 20 percent income reduction calculation.

Mileage rates for 2018

The IRS recently announced mileage rates to be used for travel in 2018. The standard business mileage rate increased by 1 cent to 54.5 cents per mile. The medical and moving mileage rates also increased by 1 cent, to 18 cents per mile. Charitable mileage rates remained unchanged at 14 cents per mile.

Remember to properly document your mileage to receive full credit for your miles driven.

The best way to avoid an audit: Preparation

Getting audited by the IRS is no fun. Some taxpayers are selected for random audits every year, but the chances of that happening to you are very small. You are much more likely to fall under the IRS’s gaze if you make one of several common mistakes.

That means your best chance of avoiding an audit is by doing things right before you file your return this year. Here are some suggestions:

Don’t leave anything out. Missing or incomplete information on your return will trigger an audit letter automatically, since the IRS gets copies of the same tax forms (such as W-2s and 1099s) that you do.

Double-check your numbers. Bad math will get you audited. People often make calculation errors when they do their returns, especially if they do them without assistance. In 2016, the IRS sent out more than 1.6 million examination letters correcting math errors. The most frequent errors occurred in people’s calculation of their amount of tax due, as well as the number of exemptions and deductions they claimed.

Don’t stand out. The IRS takes a closer look at business expenses, charitable donations and high-value itemized deductions. IRS computers reference statistical data on which amounts of these items are typical for various professions and income levels. If what you are claiming is significantly different from what is typical, it may be flagged for review.

Have your documentation in order. Keep your records in order by being meticulous about your recordkeeping. Items that will support the tax breaks you take include: cancelled checks, receipts, credit card and investment statements, logs for mileage and business meals, and proof of charitable donations. With proper documentation, a correspondence letter from the IRS inquiring about a particular deduction can be quickly resolved before it turns into a full-blown audit.

Remember, the average person has a less than 1 percent chance of being audited. If you prepare now, you can narrow your audit chances even further and rest easy after you’ve filed.

December 15– Due date for calendar-year corporations to pay the fourth installment of 2017 estimated income tax.

December 31 –

Deadline to complete 2017 tax-free gifts of up to $14,000 per recipient.

Deadline for paying expenses you want to be able to deduct on your 2017 income tax return.

Get ready to save more in 2018

You can save more for retirement next year using tax-advantaged accounts, thanks to a boost in the maximum 401(k) contribution rate by the IRS. The maximum rate increases by $500 to $18,500, which is the first increase in three years. Those aged 50 or older can still contribute an additional $6,000 on top of that amount.

This is good news, because a 401(k) is one of most potent tools in your retirement arsenal. It offers many benefits over other forms of saving, including:

Tax-deferred growth. Pre-tax income of $18,500 invested over 30 years with 6 percent annual cumulative interest will grow to $111,901.92. That’s compared with $67,588.76 of the same amount of income invested after being taxed at the highest rate. While you’ll owe tax on 401(k) withdrawals after retirement, you may be able to manage your 401(k) withdrawals to fall into a lower income bracket.

Roth option. You may opt to make your contributions to a 401(k) as a Roth investment, meaning you invest post-tax income, but you can withdraw from your Roth tax-free during retirement. A mix of traditional and Roth accounts will give you flexibility to manage your income tax rate during retirement.

Company match. Many companies offer to match the first few percentage points of their employees contributions to a 401(k). Even if you can’t max out your contribution, you should try to invest up to your company’s match limit. Otherwise, you’re just leaving money on the table.

While 401(k)s have great utility, they come with a few downsides. Any withdrawals made before age 59 1/2 are assessed a 10 percent penalty fee, in addition to being taxed as regular income during the year they are withdrawn. Any investments in 401(k)s also are limited to a few choices set by your employer’s retirement plan, so a limited number of conventional investment options in mutual funds is one of the trade-offs of using a 401(k).

4 business year-end tax moves

Even though the end of 2017 is near, it is not too late to get your business into the best possible tax position for the new year.

Here are some year-end tax moves to consider:

Update the office. A fresh coat of paint and new office furnishings not only make your place of business more comfortable, they also provide another tax deduction. How you handle deducting these expenses will vary depending upon whether you own or lease your office space, so reach out for assistance if you have questions.

Reward your staff. If you have sufficient cash flow, giving your staff a year-end bonus is a great way to let them know you appreciate them. It’s also tax-deductible.

Update your skills. Attend a workshop or conference to improve your professional skills. While there are some limitations, many travel, lodging and out-of-pocket expenses related to professional training are tax-deductible.

Be nimble. Recent discussions in Congress could mean a dramatic change in taxes on business profits beginning in 2018. Stay abreast of these developments in case you need to make last-minute moves to shift profits from one year to the next to reduce your tax rate.

There are a lot of nuances in the tax code affecting each of these end-of-year moves. Don’t hesitate to get in touch if you need advice.

New year, new job5 tax tips for job changers

There are a lot of new things to get used to when you change jobs, from new responsibilities to adjusting to a new company culture. You may not have considered the tax issues created when you change jobs. Here are tips to reduce any potential tax problems related to making a job change this coming year.

Don’t forget about in-between pay. It is easy to forget to account for pay received while you’re between jobs. This includes severance and accrued vacation or sick pay from your former employer. It also includes unemployment benefits. All are taxable but may not have had taxes withheld, causing a surprise at tax time.

Adjust your withholdings. A new job requires you to fill out a new Form W-4, which directs your employer how much to withhold from each paycheck. It may not be best to go with the default withholding schedule, which assumes you have been making the salary of your new job all year. You may need to make special adjustments to avoid having too much or too little taken from your paycheck. This is especially true if there is a significant salary change or you have a period of low-or-no income. Keep in mind you’ll have to fill out a new W-4 in the next year to rebalance your withholding for a full year of your new salary.

Roll over your 401(k). While you can leave your 401(k) in your old employer’s plan, you may wish to roll it over into your new employer’s 401(k) or into an IRA. The best way is to get your retirement funds transferred directly between investment companies. If you take a direct check, you’ll have to deposit it into the new account within 60 days, or you may be assessed a 10 percent penalty and pay income tax on the withdrawal.

Deduct job-hunting expenses. Tally up your job-seeking expenses. If they and other miscellaneous deductible expenses total more than 2 percent of your adjusted gross income for the year, you can deduct them on an itemized return. This includes things like costs for job-search tools, placement agencies and recruiters, and printing, mailing and travel costs. A couple caveats: you can only use these deductions if your expenses were to search for a job in the same industry as your previous job, and you were not reimbursed for them by your new employer.

Deduct moving and home sale expenses. If you moved to take a new job that is at least 50 miles farther from your previous home than your old job was, you can also deduct your moving expenses. There’s another benefit for movers, too. Typically, you can only use the $250,000 capital-gain exclusion for home sales if you lived in your primary residence for two of the last five years before you sold it. But there is an exception to the rule if you sold your home to take a new job.

Finding a new job can be an exciting experience, and one that can create tax consequences if not handled correctly. Feel free to call for a discussion of your situation.

As the year draws to a close, there are several tax-saving ideas you should consider. Use this checklist to make sure you don’t miss an opportunity before the year is out.

Retirement distributions and contributions. Make final contributions to your qualified retirement plan, and take any required minimum distributions from your retirement accounts. The penalty for not taking minimum distributions can be high.

Investment management. Rebalance your investment portfolio, and take any final investment gains and losses. Capital losses can be used to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your ordinary income.

Last-minute charitable giving. Make a late-year charitable donation. Even better, make the donation with appreciated stock you’ve owned more than a year. You can often can make a larger donation – and get a larger deduction – without paying capital gains taxes.

Noncash contribution opportunity. Gather up noncash items for donation, document the items and give those in good condition to your favorite charity. Make sure you get a receipt from the charity, and take a photo of the items donated just in case.

Gifts to dependents and others. You may provide gifts to an individual tax-free of up to $14,000 per year in total. Remember that all gifts given (birthdays, holidays, etc.) count toward the total.

Earlier this year, hackers were able to breach the security of Equifax, one of the three national credit reporting agencies. More than 143 million Americans – nearly half the entire country – were exposed to the attack, and may have had their personal information stolen (including names and birthdates, and Social Security and driver’s license numbers).

Equifax is still determining exactly whose data has been exposed. While you wait to find out, it’s worth taking a few proactive steps to make sure your info isn’t misused by hackers. 1. Start checking. Visit Equifax’s website at www.equifaxsecurity2017.com and enter your last name and last six digits of your Social Security number. The site will tell you whether it’s likely or not your data has been exposed, and put you on a list to get more information. You can also sign up for a year’s worth of free credit monitoring.

Watch your statements.Start checking your credit card statements, and pay special attention to cards you don’t use often. The initial reports from the breach were that hackers may have been making charges on underused cards.

Check your credit reports.You can look for suspicious items on your reports, such as new accounts being opened in your name, at all three credit report agencies: Equifax, Experian and TransUnion. Free annual reports are available at www.annualcreditreport.com. You may want to stagger your use of the reports to one from each agency every four months. More frequent checks will cost you a small fee.

Freeze your credit.If you suspect you may become a victim of identity theft, you can place a credit freeze on your profile at each of the three credit reporting agencies. This stops new accounts from being opened in your name. Note that you’ll have to unfreeze your accounts if you want to apply for new loans or make your credit accessible for things such as job applications.

File your taxes early.One of the most common ways identity thieves use your information is to try to claim a tax refund with your data. This was the most common scam in 2016, according to the Better Business Bureau. If you file your tax return as early as possible, you shut down this opportunity for any would-be thieves.

6 must-dos when you donate to charity

Donations are a great way to give to a deserving charity, and they also give back in the form of a tax deduction. Unfortunately, charitable donations are under scrutiny by the IRS, and many donations without adequate documentation are being rejected. Here are six things you need to do to ensure your charitable donation will be tax-deductible:

Make sure your charity is eligible. Only donations to qualified charitable organizations registered with the IRS are tax-deductible. You can confirm an organization qualifies by calling the IRS at (877) 829-5500 or visiting the IRS website.

Itemize. You must itemize your deductions using Schedule A in order to take a deduction for a contribution. If you’re going to itemize your return to take advantage of charitable deductions, it also makes sense to look for other itemized deductions. These include state and local taxes, real estate taxes, home mortgage interest and eligible medical expenses over a certain threshold.

Get receipts.Get receipts for your deductible contributions. Receipts are not filed with your tax return but must be kept with your tax records. You must get the receipt at the time of the donation or the IRS may not allow the deduction.

Pay attention to the calendar.Contributions are deductible in the year they are made. To be deductible in 2017, contributions must be made by Dec. 31, although thereis an exception. Contributions made by credit card are deductible even if you don’t pay off the charge until the following year, as long as the contribution is reported on your credit card statement by Dec. 31. Similarly, contribution checks written before Dec. 31 are deductible in the year written, even if the check is not cashed until the following year.

Take extra steps for noncash donations.You can make a contribution of clothing or items around the home you no longer use. If you decide to make one of these noncash contributions, it is up to youto determine the value of the contribution. However, many charities provide a donation value guide to help you determine the value of your contribution. Your donated items must be in good or better condition and you should receive a receipt from the charitable organization for your donations. If your noncash contributions are greater than $500, you must file a Form 8283 to provide additional information to the IRS about your contribution. For noncash donations greater than $5,000, you must also get an independent appraisal to certify the worth of the items.

Keep track of mileage.If you drive for charitable purposes, this mileage can be deductible as well. For example, miles driven to deliver meals to the elderly, to be a volunteer coach or to transport others to and from a charitable event, can be deducted at 14 cents per mile. A log of the mileage must be maintained to substantiate your charitable driving.

Remember, charitable giving can be a valuable tax deduction – but only if you take the right steps.

Filing deadline for 2016 tax returns for individuals or corporations if you requested/received a six-month extension. Pay taxes due by this date.

Deadline to recharacterize a Roth IRA to a Traditional IRA.

Deadline to fund your Keogh or SEP plans if you requested a filing extension.

How to Ace the FAFSA

The Free Application for Federal Student Aid (FAFSA) is a tool that students use to apply for more than $120 billion in federal funds. Unfortunately, each year many students miss out.

Even if you don’t think you or your child qualify for federal aid, filling out a FAFSA is important because it could be used to determine eligibility for nonfederal aid and private funds.

FAFSA available October 1, 2017 Previously, the FAFSA was unavailable until January. A recent change makes the application available October 1, 2017. That’s because the 2018-19 FAFSA can be completed with your 2016 tax info.

Avoid FAFSA mistakes Don’t forgo federal student aid by making one of the following common filing mistakes:

Mistake: Not reading the instructions or questions Tip: Answer all questions – even if the answer is zero. If left blank, the question will be considered unanswered. Check the FAFSA website if you are unsure of definitions of key FAFSA terms.

Mistake: Incorrect, incomplete or non-matching data Tip: Complete the FAFSA online. It takes only 3-5 days to process when submitted electronically. The online version has built-in safeguards that identify and prevent many errors.

Mistake: Not filing on time Tip: Get the application submitted ASAP. The sooner you or your child gets started, the higher the likelihood of being awarded funds since many are distributed on a first-come, first-served basis.

Remember, students need to complete a FAFSA each year because eligibility does not carry over and can vary based on circumstances.

Renew your ITIN now

If you have an Individual Taxpayer Identification Number (ITIN) rather than a Social Security number (SSN) you may need to take action or you’ll be unable to file a tax return for 2017.

What to know about ITINs ITINs are identification numbers issued by the U.S. government for individuals who do not qualify to receive an SSN. An ITIN can be used to file tax returns and is also a form of identification often required by banks, insurance companies and other institutions. Unfortunately, ITINs are also a source of identity fraud. To combat this, the 2015 PATH Act made substantial changes to the program. Now a number of ITINs will expire if not renewed by December 31, 2017.

No ITIN, no problem. If you do not have an ITIN, but have an SSN, this expiration does not affect you.

No tax return in past three years. ITINs that have not been used when filing a tax return at least once in the past three years will automatically expire on December 31, 2017.

Middle digits of 70, 71, 72 and 80 also expire. The new law creates a rolling expiration date for all issued ITINs. The key number to look for is in this position: 9xx-XX-xxxx. If your ITIN has any of those numbers, you’ll need to renew it. Last year the middle digits of 78 and 79 expired.

Renew your ITIN Don’t wait until the last minute and then discover your tax return has been rejected and your refund is delayed because of an expired ITIN. To renew, fill out Form W-7 with the required support documents. To learn more, visit the ITIN information page on the IRS website.

Business tax: time to consider Section 179?

Section 179 expensing can be a very powerful tax-planning tool for small- and medium-sized businesses acquiring capital assets. While it doesn’t change the amount of depreciation you can take over the life of a capital purchase, it can change the timing by allowing you to deduct your purchase in the first year you place it in service.

Review these details if you’re considering depreciating your business assets under Section 179:

Section 179 allows deducting the expense of up to $510,000 of qualified business purchases.

A Section 179 deduction cannot create a loss for the business.

A Section 179 deduction must be for business use. If an asset is not entirely used for business, the allowance is reduced.

If you sell a Section 179 asset prior to the full depreciation period, you will have to record any sales proceeds as taxable income.

Many states limit the use of this federal shifting of depreciation.

Taking Section 179 for capital purchases can be useful, but it’s not for everyone. Using it for an immediate tax break means it’ll no longer be available for future years.

Electing large partnerships: Filing deadline for 2016 tax returns for electing large partnerships that requested/received a six-month extension.

October 16 – Filing deadline for 2016 individual or corporation tax returns that requested/received a six-month extension. Pay taxes due by this date.

Say Goodbye to the College Tuition Deduction

Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive. However, Congress left in place two popular education credits that may offer a more valuable tax break:

The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles).

Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $131,000 per year (or singles making $65,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student.

So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction is generally the only means you have to reduce your tax bill.

Thankfully, there are many other tax benefits that help reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives.

Avoid These Common Tax Mistakes

There are nearly 1,000 different tax forms used by the IRS to report tax obligations. It’s no wonder the IRS faces thousands of tax returns with errors each year. Here are some of the most common:

Wrong names and Social Security numbers. Taxpayers regularly make mistakes by entering incorrect information for their spouses and dependents. If you recently married or divorced but haven’t yet changed your name with the Social Security Administration, you’ll need to file under your old name.

Errors in age and birthdate. Much of the tax code is based on age. Without the correct birthdate, your eligibility for tax benefits could be cast in doubt.

Incorrect bank account numbers. If you’re expecting a refund and want to have it direct deposited into your account, double-check your routing and account numbers. The IRS may catch most errors, but many are often missed. Once your refund is deposited in the wrong bank account, it’s very difficult to get it fixed.

Overlooking online donations.Many people forget about emailed receipts at tax time. Catch missing deductions by searching your email inbox for keywords such as “gift” or “donation” before you file.

Missing forms. Taxpayers can miss dividend, interest and brokerage forms (Form 1099s) they get from their banks and investment accounts. These potential missing forms now also include Form 1095, proof of health insurance. If a form is missing, it may cost you extra tax, penalties and interest.

Not signing the return. Don’t forget to sign your return! The IRS won’t accept an unsigned return, and many people forget this last step. An unsigned tax return is the same thing as not filing in the eyes of the IRS. You not only face penalties and fines, but your tax return is open for audit indefinitely.

Contractor or Employee?Knowing the difference is important

Is a worker an independent contractor or an employee? As an employer, getting this wrong could land you with an IRS audit and cost you plenty in many other ways. Here’s what you should know:

As the worker: If the worker is a contractor and not considered an employee, he/she must:

As the employer: You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to:

Payment and penalties related to Social Security and Medicare taxes.

Payment of possible overtime, including penalties for a contractor reclassified as an employee.

A legal obligation to pay for benefits.

When the IRS recharacterizes an independent contractor as an employee, they look at the business relationship between the employer and the worker. The IRS considers if the employer has the right to control the work (when, how and where the work is done) and the financial relationship (i.e., a contractor has a contract and customers, and invoices the company).

The more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

Your HSA as a retirement tool – the facts

Health Savings Accounts (HSAs) are a great way to pay for medical expenses, and since unused funds roll over from year to year, the account can also provide a source of retirement funds in addition to other plans like 401(k)s or IRAs. But be aware of how HSAs compare to other retirement investment tools.

HSAs work best when they are used to pay for qualified medical expenses. Neither your original contributions to an HSA nor your investment earnings are taxed when used this way.

There is no required minimum distribution after you reach age 70½, like there is with 401(k)s and IRAs.

You can only contribute to an HSA if you have a high deductible health insurance plan. The downside of these plans is that you pay more out of pocket each year when you need to use health services.

Annual contributions to HSAs are limited to $3,400 a year for individuals and $6,750 a year for families (add $1,000 for people aged 55 or older).

HSAs typically have fewer investment options compared with other investment tools including 401(k)s and IRAs. They also often have high management and administrative fees.

Before you reach age 65, non-medical withdrawals from HSAs come with a whopping 20 percent penalty, plus they are taxed as income.

Even after age 65, both contributions and earnings are taxed when they are withdrawn for non-medical expenses. In this way, HSAs compare unfavorably with 401(k)s and IRAs, which end their early withdrawal period earlier, at age 59½. They also have lower early withdrawal penalties of just 10 percent.

HSAs are a powerful tool to help manage the ever-rising costs of health care. Knowing the rules and the costs associated with them can help you position an HSA with your other retirement options.

Learn from the ‘best places to work’

Google, Facebook, and Southwest Airlines are among the top five companies on job search site Indeed’s “Best Places to Work 2017” list. You may not have the resources of these large companies, but you can incorporate some of their ideas into your company’s culture.

Respect. The best companies cultivate a culture of respect, according to a poll conducted by the Society for Human Resource Management. Employees say they feel valued by their leaders and their coworkers regardless of their background, ethnicity, religion, sexual orientation, or gender.

Opportunities for growth. Leaders at the best companies evaluate staff regularly and look for ways to challenge them in new areas.

Communication is key. At the best companies, leaders and staff talk constantly. The organization regularly seeks feedback about its culture, practices, and operational challenges. Leaders are accessible and open to discussion about business problems and successes.

Clear goals. The best companies openly state well-defined objectives and the steps required to achieve them, according to Fortune magazine.

Accountability. The best companies make sure workers are confident they’ll be rewarded for performance and held responsible for achieving their objectives.

Bottom line: When you treat your employees with respect and keep challenging them, they’re less likely to leave for greener pastures.

Have adult children? Take steps to avoid medical access denial

Imagine your college-aged daughter has an accident while away at school and ends up in the emergency room. When you call the hospital, you are denied information about her care because you do not have the proper forms signed. Under the Health Insurance Portability and Accountability Act (HIPAA), you do not have legal access to your child’s health information after they reach age 18, even if your child is still your dependent and their health insurance coverage is in your name. To avoid this administrative nightmare, take the following steps.

Make sure your health insurance coverage will cover your child at his or her new campus home.

Create a multipurpose medical power of attorney authorization, which will not only give you authorization to help make medical decisions, it can also include an advance directive or living will.

Scan two copies of these documents – one for you and one for your child – and keep them in a secure place along with a copy of your student’s insurance card.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.